## Fulton Fish Example

The following script estimates the reduced form equations using least squares and the demand equation using two-stage least squares for Graddy’s Fulton Fish example.

In the example, ln(quan) and ln(price) are endogenously determined. There are several potential instruments that are available. The variable stormy may be useful in identifying the demand equation. In order for the demand equation to be identified, there must be at least one variable available that effectively influences the supply of fish without affecting its demand. Presumably, stormy weather affects the fishermen’s catch without affecting people’s appetite for fish! Logically, stormy may be a good instrument.

The model of demand includes a set of indicator variables for day of the week...

Read More